U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 22647 / March 18, 2013
Securities and Exchange Commission v. CR Intrinsic Investors, LLC et al., Civil Action No. 8466 (VM)
On March 18, 2013, the Securities and Exchange Commission announced that Stamford, Conn.-based hedge fund advisory firm CR Intrinsic Investors has agreed to pay more than $600 million to settle SEC charges that it participated in an insider trading scheme involving a clinical trial for an Alzheimer's drug being jointly developed by two pharmaceutical companies.
The SEC charged CR Intrinsic with insider trading in November 2012, alleging that one of the firm's portfolio managers Mathew Martoma illegally obtained confidential details about the clinical trial from Dr. Sidney Gilman, who was selected by the pharmaceutical companies - Elan Corporation and Wyeth - to present the final drug trial results to the public.
The settlement filed in federal court in Manhattan is the largest ever in an insider trading case, requiring CR Intrinsic - an affiliate of S.A.C. Capital Advisors - to pay $274,972,541 in disgorgement, $51,802,381.22 in prejudgment interest, and a $274,972,541 penalty.
The SEC's complaint against CR Intrinsic, Martoma, and Dr. Gilman alleged that during phone calls arranged by a New York-based expert network firm for which Dr. Gilman moonlighted as a medical consultant, he tipped Martoma with safety data and eventually details about negative results in the trial about two weeks before they were made public in July 2008. Martoma and CR Intrinsic then caused several hedge funds to sell more than $960 million in Elan and Wyeth securities in a little more than a week. The SEC's complaint charged CR Intrinsic, Martoma, and Dr. Gilman with violating Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.
In an amended complaint filed March 15, 2013, the SEC added investment advisory firm S.A.C. Capital Advisors, LLC and hedge funds CR Intrinsic Investments, LLC, S.A.C. Capital Associates, LLC, S.A.C. International Equities, LLC, and S.A.C. Select Fund, LLC as relief defendants. The amended complaint alleged that these relief defendants received ill-gotten gains from the insider trading scheme. These ill-gotten gains are comprised of profits and avoided losses obtained by the hedge fund relief defendants, and include fees that S.A.C. Capital received as a result of these ill-gotten gains.
The settlement is subject to the approval of Judge Victor Marrero of the U.S. District Court for the Southern District of New York. The settlement would resolve the SEC's charges against CR Intrinsic and the relief defendants relating to the trades in the securities of Elan and Wyeth between July 21 and July 30, 2008. The settling parties neither admit nor deny the charges. The settlement does not resolve the charges against Martoma, whose case continues in litigation. The court previously entered a consent judgment against Dr. Gilman requiring him to pay disgorgement and prejudgment interest, and permanently enjoining him from further violations of the anti-fraud provisions of the federal securities laws.